Mortgage rates eased again this week as inflation continues to move in the right direction and leading economic data continue to point to a slowdown ahead. Last week’s inflation report showed the core Personal Consumption Expenditures (PCE) Price Index – the Fed’s preferred gauge for inflation – matched investors’ and most professional forecasters’ expectations as it continued to move toward the Fed’s two-percent inflation target.
Yields and mortgage rates depend on expected economic growth and Fed expectations. Further disinflation coupled with a larger than anticipated slowdown in economic growth will exert downward pressure on yields.
Inflation is expected to keep moderating but this week’s release of the August jobs report will likely cause investors to readjust their forecasts for economic growth. With growth in the labor force expected to slow, a stronger-than-expected increase in wages could trigger more mortgage rate volatility and perhaps a small rebound in yields that mortgage rates tend to follow.